Federal Institutions and the Democratic Transition: Learning from South Africa

We present a model of a peaceful transition from autocracy to democracy using federal governance as a constitutional means to protect the economic interests of the once ruling elite. Under "democratic federalism" the constitution creates an annual policy game where the new majority and the elite each control one policy instrument of importance to the other. The game has a stable, stationary equilibrium that the elite may prefer to autocratic rule. We apply our analysis to South Africa's transition from white, elite rule under apartheid to a multi-racial democracy. We calibrate our model to the South African economy at the time of the transition. Stable democratic equilibria exist for plausible estimates of redistributive preferences and rate of time preference ('impatience') of the new majority during the early years of the new democracy. The future of the democratic federal bargain is less certain under the new populist presidency of Jacob Zuma.